Archive for March, 2016

Thursday, March 24, 2016 @ 11:03 AM
posted by Kent Lockridge

The American Farm Bureau Federation’s Spring Picnic Marketbasket Survey decreased from last year thanks to lower prices for several foods, including salad, orange juice, shredded cheddar, ground chuck, sirloin tip roast, vegetable oil, white bread, ground chuck, deli ham and orange juice. The informal survey shows the total cost of 16 food items that can be used to prepare one or more meals was $53.28, down $.59 or about 1 percent compared to a survey conducted a year ago. Of the 16 items surveyed, ten decreased and six increased in average price. Egg prices are up sharply from first quarter of 2015, a year ago but are down even more sharply from the third quarter of 2015. This shows the effect of the HPAI (High Pathogenic Avian Influenza) event last year. Prices on the beef items in the marketbasket – ground chuck and sirloin tip roast – peaked in early 2015 at record high levels. Since then, a combination of increasing beef production, weaker exports, and lower competing meat prices have led to modest price declines. Dairy product prices also remain relatively low. At $4.29 for a one-pound bag, shredded cheddar cheese price is at the lowest price in this survey since the third quarter of 2012. The whole milk price rose almost 3 percent from the third quarter of last year, but that third quarter price was the lowest price in the survey since 2010. (Source: American Farm Bureau Federation) Marketbasket Survey

 

Monday, March 14, 2016 @ 10:03 AM
posted by Kent Lockridge

Macro traders are wondering if last weeks trend of crude oil moving higher and the U.S. dollar moving lower is only a brief anomaly or greater evidence of things to come? There’s a ton of moving parts this week so make certain you are paying very close attention. Below are the ones the trade seems most heavily focused on. These are also the headlines that will most directly impact the direction of the U.S. dollar and crude oil, hence ultimately deciding the overall direction of stocks and commodity prices:

  • Fed Meeting: Federal Reserve officials start their two-day meeting on Tuesday. Even though most inside the trade doubt we will see any type of rate hike, there’s a very strong chance we could see more hawkish type commentary and increased   thoughts of another rate hike between now and July. Keep in mind employment has strengthened as of late and inflation appears to have gained a little nearby momentum on higher prices at the pump. 
  • U.S. Presidential Campaign: The 2016 race is certainly heating up and drawing a ton of press and uncertainty amongst Wall Street traders. There’s a lot of talk as of late that the recent weakness in the U.S. dollar is a direct result of the uncertainty surrounding who will become the next U.S. president. With several “extreme” candidates still in contention the world is a bit on edge in regard to free trade, immigration, big banks, taxes, etc… The extreme “changes” being discussed make the trade nervous as nobody knows exactly how the worlds #1 economy will be altered during the next four years? Keep in mind there’s some huge presidential primaries this week in key states like Florida, Illinois, Missouri, North Carolina, and Ohio. Don’t forget some of these are “winner-take-all” states and could largely impact the race. 
  • Crude Oil & China: There’s a ton of Chinese economic data scheduled for release this week. IN fact over the weekend it was reported that China’s industrial production during the first two months of the year grew at its slowest rate since the global financial crisis. The figures were the weakest since November 2008.  Many insiders I speak with have had little confidence through the years in the accuracy of most Chinese data. This is why crude oil prices have been so heavily influential across the trade as of late. Many insiders believe the price of crude oil tells a more accurate story about the strength of the Chinese economy. Meaning the Chinese government can release whatever data they want and tell the world they are expecting +7% growth in GDP, but when crude oil prices are betting out and the world is seemingly swimming in a glut of over-supply, it’s tough to believe the numbers. Perhaps the recent turnaround and move higher in crude oil price is an indication the trade may have gotten a bit too bearish the Chinese economy and perhaps there are some signs of a recovery, or at least a chance their latest dovish policies changes by the government has stopped the bleeding? OPEC is scheduled to release its monthly oil market report today. Investors will be looking to see whether production increased in February and what the group’s projections are for full-year output. If you recall, Saudi Arabia and fellow OPEC members Qatar and Venezuela agreed with non-OPEC Russia to freeze output at January levels, with the stipulation that other oil exporters also agreed to it. Over the weekend, an Iran state news agency said their oil minister would join in discussions between members about a possible freeze, but only after their output returns to pre-sanction levels, which would be about 4 million barrels per day.
  • Bank of Japan is scheduled to announce tonight whether or not it will expand its quantitative easing program. 
Monday, March 7, 2016 @ 11:03 AM
posted by Kent Lockridge

U.S. stocks are down slightly this morning as macro traders  digest headlines from over the weekend that China has cuts it’s economic growth target. The Chinese government however emphatically denies any rumors of a “hard-landing”. Crude continues to gain traction and is now trading at multi-month highs.  Emerging market equities just chalked up their biggest weekly gains since 2011. It’s also worth noting that both gold and iron ore, though down slightly this morning, are up nearly +20% on the year. All of which has some inside the trade arguing that the commodity markets have bottomed. Bottom-line, I suspect as oil stabilizes investors are going to continue to feel more at ease with adding “risk”. There seems to be more talk about the overall economic landscape becoming much more highly “fragmented” rather than negative across the board. In other words some pockets or areas of the economy are seeing sharp declines and have clearly moved into recessionary territory, while other areas remain strong and robust. Many analyst believe this is why the markets have become extremely difficult to forecast. It seems like whatever direction the  headlines and lights on the stage decide to shine can produce wildly different results. One thing for certain, we are finally seeing more sizable cuts in U.S. oil production as rig counts drop below 400. Keep in mind, U.S. crude production had jumped from just 5.4 million barrels a day back in early-2010 to a whopping 9.7 million barrels per day this past spring. We are also seeing more headlines about Saudi Arabia looking to borrow $10 billion dollars and talk their government may be starting to feel the pain of cheap oil. Russia is also talking more openly about possible production cuts. Here at home this week economic data will be very light, today’s only release being the Labor Market Conditions Index, which isn’t heavily watched by investors but seems to be  something the Federal Reserve officials monitor. Keep in mind the jobs report this past Friday was extremely strong, showing employers added +242,000 jobs in February, well above market consensus. The government also revised upward its estimates for job gains in December and January by a total of +30,000. The negatives in the report were a -0.1% decline in hourly wages and a slight reduction in weekly hours worked. I suspect the main event this week will be the European Central Bank’s latest policy decision, which will be announced on Thursday morning. The trade is expecting the ECB to move rates further into negative territory. Keep in mind that the whole “negative rate experiment” is eyed with a high degree of anxiety as investors and economists alike aren’t sure what the ultimate consequences might be. While central bank stimulus has historically been viewed by Wall Street as a positive, the deeper move into negative territory may not illicit that traditional response. It doesn’t help that the ECB’s stimulus efforts have so far failed to prop up their waning economy, as just last week data showed the the EU block has slid back into “deflation.” Analysts are also expecting the ECB to increase its bond buying by around $11 billion per month. Investors will also be watching the next round of U.S. presidential primaries that will be held in Hawaii, Idaho, Michigan and Mississippi, then the Virgin Islands on Thursday. Over the weekend, GOP candidate Ted Cruz won contests in Kansas and Maine, while frontrunner Donald Trump carried Louisiana and Kentucky. The results keep Trump solidly ahead in the delegate count: 384 for Trump; 300 for Cruz; 151 for Rubio and 37 for Kasich. On the Democratic side, Hillary Clinton won the state with the biggest delegates, Louisiana. Bernie Sanders won in both Kansas and Nebraska: Clinton now has 1,130 delegates; Sanders 499.

Wednesday, March 2, 2016 @ 11:03 AM
posted by Kent Lockridge

If you want to look to the future of food production, its important to look at the trends in crop breeding technology, specifically at the countries with the most patent activity. According to research from Thomson Reuters and their “9 Billion Bowls” project, a research piece I encourage everyone to read in full-detail, China is making a bold push to be the world’s breadbasket of the future, perhaps within the next decade. As it stand now the U.S. and China alone represent 68% of all the patent documents associated with crop breeding around the world. From what I understand these two countries are larger than the closet competing country by at least a factor of five. However, it’s notable that while the U.S. has more patent applications over the past 5 years than China, the majority of the U.S. documents are coming from a small collection of private companies, while the Chinese applications are coming from a larger number of academic institutions. Once China’s private industry begins patenting, there is a high likelihood that they will pass the U.S. in the number of crop breeding patent applications produced. Based on the recent filing data, it’s clear that China has taken a a more aggressive interest in crop breeding and is using these innovations to position themselves not only to meet the needs of their own domestic population, but to potentially challenge the U.S. as the “Breadbasket of the World.” This is a terrific bit of research and there’s a lot more interesting data worth digesting. You can see form the information that the Thompson Reuters team has put a lot of time and research into this study and have certainly delivered a quality report. (Source: Thomson Reuters, 9 Billion Bowls)

WW Crop Breeding Patents